Alibaba locates potential in Beidou system

E-commerce giant Alibaba Group Holding Ltd is set to join with the country's largest defense equipment manufacturer to promote the Beidou satellite navigation system for civilian use, insiders said.

Numerous reports on Monday said the cash-flush Alibaba Group has added to its latest investment spree by inking a deal with State-owned China North Industries Group Corp for a joint venture based on the Beidou system.

The project has registered capital of 1 billion yuan ($160 million), according to Dazhihui News Agency, an organization affiliated with stock market consultancy Shanghai DZH Ltd.

Dazhihui, which first broke the news online, quoted sources as saying that Alibaba has big plans for Beidou that include a further expected investment of more than 10 billion yuan.

Alibaba's public relations office declined to comment because it is in its quiet period due to its IPO debuting in the United States next month. But making investments and breaking into new sectors are not something new for Alibaba, which has spent more than $5 billion since the beginning of the year and transformed its e-commerce empire into a conglomerate covering a growing number of industries, from wealth management to the media, from professional soccer to dairy.

Alibaba's latest move is expected to boost the civil use of the Beidou system, said Cao Chong, an expert with the Global Navigation Satellite System (GNSS) and Location Based Service (LBS) Association of China.

"As an Internet company, which is eager to promote location-based services, Alibaba enjoys an edge in developing apps that are popular in people's daily lives," Cao said.

According to Cao, the Beidou system is quite accurate in terms of locating people indoors, while other navigation systems are mostly used for outdoor use. "By offering Beidou-based services, Alibaba Group can bring its location-based services to the next level because people spend most of their time indoors," he said.

The central government in October released a medium- and long-term plan to boost the Beidou system's domestic market share to 60 percent by 2020. The goal is to raise the navigation-related industry to 400 billion yuan, popularize Beidou throughout the nation and enhance the international effectiveness of the system.

Yin Jingxue, an analyst with Internet consultancy Analysys International, said: "Civilian use of the Beidou system is still in its infancy in China, as its navigation chips are more expensive compared with similar chips made overseas. So the Beidou system is still largely used for military and industry applications."

Yin said the Beidou system is not suitable for wide personal use unless there is a technological breakthrough. "There is still a long way to go because mobile phone manufacturers in China are very eager to reduce their production costs. There is no reason for them to produce mobile phones with expensive chips when they can buy other chips at lower prices overseas," she said.

"China North Industries Group Corp has traditionally been doing business in the defense technology and manufacturing sector rather than the satellite navigation industry," said Wang Ya'nan, deputy editor-in-chief of Aerospace Knowledge magazine. "But the company must have seen huge potential in this field, so it established a branch in 2009 to tap into the market."

He said State-owned defense enterprises have spared no effort to diversify their operations so they can handle increased competition.

"I think that working with Internet giants such as Alibaba will help North Industries gain more access to small businesses that can become users of satellite navigation services," Wang said.